Oct 8, 2021
EU to Explore Joint Gas Purchases to Blunt Energy Crisis Impact
The European Union’s executive will explore the possibility of national governments jointly purchasing and storing natural gas to boost the region’s energy resilience and avoid future price shocks.
The European Commission is set to examine options for strengthening the region’s leverage in talks with third-country suppliers as part of a plan to avoid the energy crunch undermining an economic recovery. The plan will also offer guidance on how to design tax cuts, direct support for the most vulnerable and state aid for companies, according to a person familiar with the draft EU proposals.
About 20 countries have taken action already to blunt the impact of the crisis or are in the process of doing so, according to the draft. These measures can be financed with revenues from government auctions of permits in the EU carbon market and other tools such as environmental taxes. The Commission also notes that member states have the leeway to appoint a supplier of last resort.
Gas and power prices have soared to records as Europe is nearing the winter heating season, prompting some industrial giants to curtail production and fanning social concerns about sky-rocketing bills for households. The spike comes as demand rebounds with the effects of the pandemic waning, and coincides with limited supplies from Russia and Norway.
How U.K. Energy Crisis Hits Gas Suppliers, Households: QuickTake
While Russia is fulfilling its longer term contractual obligations, lower-than-expected volumes are coming from the country given the scale of current demand and its exporter Gazprom PJSC is offering little or no extra capacity.
Energy prices are expected to fall by April 2022, according to the EU draft, but are likely to remain above average compared with previous years.
The creation of a common platform to buy natural gas was urged in the past weeks by governments in Madrid and Athens as a way to use the bloc’s leverage in talks with third countries. The idea isn’t new; it dates back to the last decade when such a move was pushed by a group of mostly eastern European countries led by Poland, which have long voiced concerns about the bloc’s reliance on Russia.
The proposal for joint purchases failed to gain majority support from member states back then. EU Energy Commissioner Kadri Simson said earlier this week that complexity and practical obstacles have always outweighed the benefits of such a mechanism.
EU leaders will discuss the energy crisis and measures to blunt its impact on the economy when they meet at a summit in Brussels on Oct. 21-22. The EU toolbox, which can still change before being adopted by the Commission, is also set to include several actions that member states could take immediately including:
- tax exemptions or reduced rates
- tax breaks for households and companies provided they are compatible with state aid rules
- support to help industries adapt to the energy transition
- encouraging long term power purchase agreements of renewable electricity
- shifting the financing of renewables to sources outside electricity bills
- price caps
- emergency income support to the most vulnerable
The Commission will also encourage member states to help industries transition to renewable energy more quickly. The EU’s executive arm will look at ways that it can help speed up and support that transition in the coming months, noting that clean energy is the best insurance against future shocks.
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